Cantillon: Hotel VAT rate in focus as room rates up

The 9 per cent “tourist” VAT rate has become something of a hardy annual when it comes to the inevitable pre-budget pleading. The Government introduced the concession in 2011 in order to give the Republic’s ailing tourist industry a competitive lift.

At the time, and on several occasions since, the Minister for Finance Michael Noonan warned it would be clawed back if the industry failed to pass on savings to consumers, and in particular, to the price-conscious tourists who began to desert us in droves when holidaying here became too expensive during the bubble era.

Lots of figures published this year indicate that the tourists are flocking back, but data also suggest expensive hotel rooms have returned as well. Earlier this year, PricewaterhouseCoopers predicted prices could return to 2007 levels by next year.

More recent figures claim that has happened already. Accommodation website, Trivago, said that the average rate in Dublin was up 26 per cent at €167 per night last June. Numbers published last week put the national average at €116, up 15 per cent in the first half of the year.

So, is it time to claw back the VAT cut? Dalata Hotels chief executive and industry veteran, Pat McCann, doesn't think so. He argues that the various surveys of room rates take a narrow and expensive sample, based on what you pay if you book the day before, or at relatively short notice.

Instead, he says hotels do much of their business at far lower rates. They do deals with groups and with corporates, which want to extract the best value they can, while many guests book well in advance. Dalata’s average room rate in its Irish hotels in the first half of this year was €86.41, a little under 20 per cent more than the €72.35 it charged during the same period in 2014.

The big threat to the industry is not the rates, he says, but the risk that there simply will not be enough rooms to meet demand for Dublin hotel beds, a demand which continues to expand.